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UPDATE 3-Kier to sell housing businesses, cut 1,200 jobs and suspend dividend

* Will look to sell its housebuilding and property units

* Suspends dividend and will cut 1,200 jobs to reduce debt

* Shares fall to new low (Adds further detail, quotes)

By Justin George Varghese and Paul Sandle

LONDON, June 17 (Reuters) - Kier Group will sell its housebuilding and property businesses, cut about 1,200 jobs and suspend its dividend for at least two years in a radical overhaul designed to lower debt and stabilise the business.

The British contractor said it would also shed its facilities management and environmental services units, leaving it focused on regional building, infrastructure, utilities and highways.

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Shares in Kier, which has contracts for London's Crossrail project, fell 13% to a new low of 114 pence after the strategic review was rushed out on Monday by Chief Executive Andrew Davies, who took charge in April.

The shares, which listed in 1996 at 141 pence, have slumped 70% this year. Kier is the latest company to run into trouble in the British outsourcing sector, which provides essential services to central government, local authorities and other public bodies.

Major investors in the company, which has seen its market capitalisation fall to 192 million pounds, include British money manager Neil Woodford, who this month suspended his flagship fund.

Davies said the actions would simplify Kier's portfolio and focus on cash generation to reduce its debt.

"There are four, in my view, very high quality businesses that are valued by their clients," he said. "But we do need to administer self-help and today's announcement is all about taking decisive action. Davies, a former CEO of builder Wates Group, was appointed to lead Carillion in 2017, but it collapsed under the weight of its debt in January 2018 just before he was due to start.

DEBT PRESSURE

Kier said its average net debt this year would be in the range of 420-450 million pounds, higher than its previous forecast of 360-380 million pounds, due to increased pressure on its working capital, including from a reduction in the level of trade credit insurance available to some suppliers.

The restructuring plan came after Kier warned on profit two weeks ago, blaming higher costs and pressures on its highways, utilities and housing maintenance businesses.

Kier's combined credit score, according to Refinitiv Eikon data, indicated it was highly likely to default next year.

The company's score on a scale of 100 to 1, fell to 1 on Monday from 2 on Friday and 5 before its profit warning.

However, finance chief Bev Dew, who is due to leave by the end of September, said talks with its banks were "very supportive".

Analysts at Liberum, who have a "buy" rating on the stock, more than halved their target price to 150 pence from 320 pence.

"Disposals can reduce debt and probably more importantly reduce leverage ratios," they said.

"However events are moving fast and disposals are likely to be complicated, given the joint ventures in property and residential, they will be very dilutive."

In a sign of consolidation moves among contractors, Babcock confirmed on Monday that it had rejected an offer by rival Serco Group in January to combine the two companies in a deal that would have created a company focused on the defence sector and worth 4 billion pounds ($5 billion).

Davies said Kier had already received expressions of interest in its housebuilding business, which built 842 units in the six months to end-December, at which time it had a landbank of 4,739 plots.

Kier said that 650 full-time employees would leave by the end of this month and a further 550 would leave next year to save costs of about 55 million pounds ($69 million) from its 2021 financial year.

The group, which was founded in 1928 and built parts of the Trans-Iranian railway, employed 16,285 people according to a survey in its 2018 annual report. (Reporting by Justin George Varghese in Bengaluru and Paul Sandle in London Editing by David Goodman/Keith Weir)